GFB offers to loan SJ his half of the down payment (lets say half is between 40 and 50k). This loan begins Jan 1, 2004 and was initially specified at 4.5% The loan term was 30 years, but SJ and GFB expect to sell the property in 7 years.

Would this loan be subject to these same rules as described in earlier posts?

Also, what would happen if SJ decided that he and GFB entered into a purchase that was losing money, and they decided to drastically lower the interest rate so SJ doesnt lose his shirt in interest (for fun, lets assume the rate drops to an absurd 1%)... What would the tax implications be here? Would SJ have to claim the 4% diff on the August rate as a gift?

TIA!Kris

PS-- what would SJ have to do to be able to deduct interest on the down payment akin to a mortgage...?